Why Spend Under Management Should Be a Culture, Not a Goal
Search for the term “Spend Under Management” and you’ll find countless articles on how you can manage a higher percentage of your spend in a few simple steps. These articles are certainly helpful to teams managing less than 64.9% of their spend, the industry average, but they miss a key point: spend under management isn’t a goal, it’s a culture.
Like the outcomes of making operational excellence a core value, the results of treating spend under management as a raison d’etre speak for themselves. According to Ardent Partners, the best procurement teams confidently manage an astounding 91.5% of their organization’s spend! In contrast, all other organizations average a little over 50%, and according to our recent study with Procurious, only around 49.7% of them report spend under management as a KPI.
The good news is that you can initiate a best-in-class spend management culture in your organization. Here are three ways to make the shift.
Spend under management isn’t shallow
Many teams struggle to manage their spend because they aren’t looking deeply enough for opportunities. Instead, they focus on purchase orders, fulfillment rates, supplier performance, purchase price variance, and other metrics. These are important, but they don’t always produce the big results procurement teams are looking for.
That’s because the most impactful addressable spend opportunities often lie deep within your spend data. You’ll need a way to drill down into categories and subcategories to find the hidden factors that influence organizational trends.
Creating a culture of spend under management isn’t only about seeing opportunities. Once you find them, you’ll need a way to do something about them. Where execution usually falls short is that it’s not visible to the wider team or the organization as a whole. This means that project management is usually siloed and tactical.
To turn spend management into an operating principle, you’ll need a project management cockpit that anyone can see, whenever they need to see it. Introducing procurement-focused project management into your organization will turn procurement projects into core operations that move the entire business forward.
Spend under management isn’t about recreating the wheel
Another common issue that Procurement runs into is trying to manage spend by reimagining it completely. In most cases, the status quo needs a refresher, but this isn’t always the case. Sometimes, spend is already under management, it just looks different than Procurement imagines.
Contrary to popular belief, Procurement doesn’t need to control everything in order to create a strategic culture. Instead, the function needs to understand everything. This starts by cultivating the strong lines of digital communication that your project pipeline establishes.
But don’t make the mistake of thinking that these communication lines only go outward from Procurement. Understanding starts with listening. Invite stakeholders to ask questions, provide feedback, and explain the current reality of spend and you’ll discover areas of improvement that were previously hidden. But you may also find areas where spend is already under control without your involvement.
Non-management has consequences
Once you’re equipped to find opportunities and you’ve established effective communication, you’re ready to cement a culture of managed spend. The final key is to show leadership and stakeholders what will happen if the business allows spend to get out of control.
One way to do this is to harness savings tracking and reporting. Having the ability to communicate Procurement’s results on a whim will allow you to show stakeholders what you’ve achieved. This will increase trust, but it will also demonstrate how taking spend under management produces real results.
Another option is to harness your spend analytics and drill down abilities from the first step to illustrate the current realities of unmanaged spend. For example, show stakeholders the maverick buying or show them how category spend balloons where there are no preferred or contracted suppliers. When stakeholders can see the results of fragmented spend in financial terms, they’ll get on board with removing barriers to a culture of spend under management.
While a lack of satisfactory tools has certainly been a limiting factor in the world of procurement, it isn’t the biggest issue teams are facing today. Instead, they’ve made spend under management their ultimate goal, focusing on it like it’s a finish line that they’re trying to cross.
However, spend under management isn’t a goal; it’s an internal culture, a way of thinking about everything Procurement does. It’s a lever that teams must use every day to move toward their ultimate goal: strategic impact.
Until teams start looking at Procurement through a spend management lens, their operations will be too focused on reaching a specific destination. They won’t move forward with the operational philosophy needed to spearhead ESG initiatives, tackle scope 3 emissions, or mitigate supply chain risk.
The good news is that digital transformation has given you the tools to establish a spend under management culture. Ready to see how? Click the button below to see how drilling into your spend and managing projects with a tool designed on two decades of Procurement experience makes it easy.